Single Vendor vs. Multi-Vendor Outsourcing: What to Choose?
A large orchestra has a number of instrumental sections – woodwinds, brass, percussion, etc.
Each of those sections has a leader responsible for providing the time and expertise for practicing their portion of a symphony performance. The orchestra director has, in effect, outsourced each piece of the larger task to those section leaders and continues to manage their progress as preparation continues.
If that management has been solid, and each leader has done their job and met the deadline, the result is a smooth and beautiful performance.
This is a simple analogy that paints a clear picture of what multi-vendor outsourcing is all about.
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Outsourcing Vendor Management: Multiple Suppliers vs Single Suppliers
What Works Better?
Each section leader is a supplier or vendor with specific expertise in the section’s instrumentality. The orchestra director (client) would also have an option to employ a single supplier, that is, a lone individual who has expertise in all instruments and who could manage the performance practice of each section.
A business that has a need to outsource its technology development has the same choice. It can look for a single vendor with a solid reputation in development in their niche and use that vendor for multiple projects. Or, they can choose to find vendors with specific expertise in each project type and contract individually with them.
Certainly, there are pros and cons of single-sourcing vs multiple sourcing in software development. These must be carefully weighed before a decision should be made.
Pros and Cons of Single Vendor Outsourcing
Most businesses tend to opt for a single vendor at first as it seems to be the easiest course of action. After all, it is convenient to drop off all the business processes you cannot handle in-house to a trusted 3rd party.
Single vendors tend to be massive powerhouses that can simultaneously handle all sorts of projects:
- Software/app development
- Big Data analytics services
- Product and graphic design
- Tech Support
- Customer support/Call centers etc.
The pros here are obvious:
- There is only one vendor to collaborate with, and a single relationship is easier to establish and maintain.
- Communication and discussion are easy to set up and implement.
- Usually, only a couple of in-house managers will be required to oversee project completion and implementation. Vendor management is simple.
- As with any outsourcing, there is no need to maintain an in-house team.
As business models and operations become more complex, however, and as greater demands are placed on technology infrastructure, it is harder to find a single vendor with specialized expertise in everything.
Developers and development agencies are increasingly becoming more specialized too. This is where the single-vendor “cons” of coming into play:
- It is difficult to find a development agency with specialized departments to meet all technology and software needs. The best companies specialize in certain niches and don’t have the capacity to train and maintain a staff that is “expert” in everything.
- The quality of different services may fluctuate significantly. A single vendor can have a well-trained tech support team and expert coders, yet mediocre marketers on board, who are not really familiar with your domain.
- Big vendors keep focusing on one direction – often the most profitable one at the moment. They can stay on top of their game and have a perfectly well-managed DevOps team, yet fail to oversee the customer support department properly.
- Less power to negotiate a better deal. Most vendors offer “fixed-price” bundles for the offered services. At some point, you may find yourself locked in a deal that is no longer the best on the market or doesn’t match your current business needs.
- Less room for innovation. Larger teams are less agile and may not be capable to catch up with the latest tech trends and best practices. It takes more time for a large vendor to adopt new protocols or start supporting new OS/software.
The advantages and disadvantages of single sourcing are pretty clear. The more complex an organization’s operations become, the less likely it is that a single vendor can meet multiple needs.
Pros and Cons of Multiple Sourcing
A financial enterprise has a large mortgage loan division. And this is a highly competitive niche. It stands to reason that the organization wants the best in IT operations and software/apps for both its in-house staff and for consumers who want streamlined access to information and to their accounts.
The company also invests heavily in 24/7 support and wants to aggressively market the new product both to B2C and B2B customer segments.
Consider just some of the technology/staff needs of this enterprise if it is to upgrade and be competitive:
- Sophisticated and streamlined internet capacity for borrowers to access their accounts, make payments and download such things as annual interest statements – via PCs and mobile devices.
- Software for marketing lead generation and a dedicated manager to set up a marketing funnel.
- Processes for advising on/selling mortgages based upon consumer behaviors and qualifications – processes that allow consumers to assess their own creditworthiness and the cost of possible mortgage products.
- Streamlined underwriting process to cut time from origination to approval.
- An effective system to predict and prevent fraud.
- User-friendly interface design that would make the final product simple to use for non-specialists.
- An around-the-clock tech support team that will do troubleshooting both for consumers and larger enterprises using the same software.
It is unlikely that a single vendor can provide excellent development of all of these operations.
Multiple sourcing will be necessary. But it comes with its own set of pros:
- The risk is reduced. A company is not fully dependent upon a single outsourcing provider for everything. If one part of a project goes awry, that one vendor can be replaced far easier than finding another vendor for a multi-faceted project.
- The best expertise for each facet of a project or for multiple related projects can be secured.
- Reduced time-to-market. As each facet or project is completed, it can be launched. Consider the mortgage lender example. Each tech solution can stand alone without dependency on a total package and could be deployed one after another.
- Access to more diverse technology choices. Using multiple vendors means that you gain access to a wider choice of options and can benefit from the latest innovation in the domain.
- Better account support. Single vendors are often less incentivized to offer superior support and attention to the “locked-in” client, whereas a multi-vendor environment is more competitive with all parties being more interested in keeping you on-board.
But multiple sourcing certainly has its cons:
- It will require far more management time and effort, especially if multiple vendors must be synchronized in their deliveries.
- Assessing the value of projects is more challenging when multiple providers, each with their own frameworks and tools, are in the “mix”. Going back again to the mortgage lender, the causes of an increase in mortgage product sales may be difficult to determine when multiple new programs/apps are put into place in a relatively short time frame. Which vendor(s) was/were really responsible for the “uptick?”
- Standardizing governance across multiple vendors can be tough, given they all have their own models and processes. Finding common multi-vendor management “rules” that all vendors can accept and live by is a real challenge. But, if they are interested in working with your project/market, they will be flexible. So, try to consider vendors that work in your niche.
Given these multiple sourcing advantages and disadvantages, product companies and enterprises have to ask themselves this: do they want the very best? Do they want to be highly competitive in their markets with the best tools and innovations?
The answer is probably “yes.” And that “yes” means taking on the challenges in the multi-vendor environment.
How to Manage Multiple Vendors at the Same Time
According to the latest Global Outsourcing Survey by Deloitte, 34% of companies are already rating themselves above average for maintaining multi-vendor environments.
The same report also states that the demand for multi-service provider integration will keep growing in the upcoming years, meaning that to stay competitive you will need to level up the process of securing and managing vendors.
The next steps should give you the basics for getting started with that.
Step 1: Get Your Own Ducks in a Row First
Before shopping for service providers and sourcing quotes, ask yourself this:
- What exactly do you want to achieve?
- What business processes do you need to outsource?
- Are you looking to upgrade your existing systems and infrastructure or build the base from scratch?
- What is it that you expect the outcomes to deliver in terms of more efficiency, greater UX, or enhanced operations?
Until you define these clearly, you are not ready to outsource at all.
Step 2: Categorize Your Desired Solutions
Your in-house staff, usually in several departments will need to participate in discussions of what would improve the quality of the services you are offering to clients/customers.
Also, your in-house IT staff will need to help categorize the various facets of these solutions, so that you have the details you need when you solicit for vendors.
The marketing team (if any) should also chip in on the possible assistance they may need and identify the most pressing areas e.g. copywriting, lead generation, email marketing and so on.
Next, think about the design – do you have a team to work on the app’s UI/UX? Do you need an extra designer to help you create product landing pages/marketing materials? Can a single team fulfill this role or do you need to hire those separately?
Step 3: Determine Governance Processes and Guidelines
Project management, especially when several vendors are involved, will be critical.
You will need in-house management, but you may very well need collaboration among various vendors, in order to synchronize development.
Who and how will you manage this? A vendor management system must be devised that will keep all stakeholders in the loop.
Often, the company will establish a steering committee that will meet regularly, maintain regular communication with and among vendors, and monitor all progress. And these governance guidelines must be a part of the package that is presented during the solicitation process. You do not want to waste time and effort soliciting vendors who will then back out because they cannot conform to your governance requirements.
Step 4: The Solicitation Process
Do not be “penny wise and pound foolish”.
On the other hand, this is a competitive marketplace, and vendors will be as cost-conscious as possible in order to get your business. The important thing is to provide enough details in the initial product requirements list so that the right tech vendors will bid. The same is true when shopping for design/marketing/support services.
The other critical element, as you already know, is to research each vendor’s history and reputation.
Step 5: The Contracts and Service Level Agreements (SLA’s)
How to manage multiple outsourcing vendors may be new to an organization that has never engaged in this activity. But many issues can be prevented by a solid contract and service level agreements that are established upfront.
This involves several tasks on your part:
- Your steering committee should consist of both business and technical in-house staff.
- Deliverables should be specified for each vendor along with timelines for reporting and actual delivery.
- Each vendor should have specified responsibilities and processes for ironing out overlaps with other vendors. Some vendors must be willing to share some of their proprietary knowledge with others.
- There should be incentives in place, as well as penalties for non-performance.
- Tracking mechanisms must be in place – for performance, for compliance, and for budgetary constraints.
Developing your own expertise in how to outsource to multiple vendors simultaneously is a process in itself. Your goals may range from better service to your clients/customers to increased long-term savings, to best practices within your industry niche. To achieve those goals in today’s climate, the use of multiple vendors is pretty much a given. We’re in an era of specialization, and no single vendor will be able to provide all of the solutions you need. Your task is to be transparent and flexible, as is the task of any vendor you use.
Once you have mastered the process of managing multiple vendors, you will understand the value of this approach, and you will see the value that it brings to your organization’s growth and success.
Romexsoft is an agile Java development company that specializes in software/app development and Big Data analysis services. We are a dedicated development team in Ukraine. We don’t offer all kinds of services for any niche out there, yet we are proud to be experts in the following domains – healthcare, e-commerce, fintech, and media. Let’s get in touch!
Written by Romexsoft on September 27th, 2017